An Important U.S. Supreme Court Decision

The U.S. Supreme Court has ruled that the anti-lien provision of the federal Medicaid Act preempts a state’s right to take any portion of a Medicaid beneficiary’s tort judgment or settlement not specifically designated as payment for medical care. The Court’s ruling in the case styled Wos v. EMA, effectively blocks North Carolina’s efforts to recover up to one-third of any damages a Medicaid beneficiary recovered from a third party, as reimbursement for the state’s Medicaid coverage of the beneficiary’s medical treatment.

The case involves a child – EMA – who was born with serious birth defects which will prevent her from being able to work or live independently. North Carolina’s Medicaid program funds part of the child’s medical care. Her parents settled a medical malpractice lawsuit related to the child’s birth for $2.8 million dollars. It should be noted that expert witnesses at trial estimated total damages in the case would exceed $42 million. I understand the amount of the final settlement was determined in part by the treating physician and hospital’s insurance policy limits.

Notably, the settlement agreement itself did not specify whether portions of the $2.8 million proceeds were allocated for medical or non-medical damages. The trial court approved the settlement, but placed one-third of the recovery into escrow pending a determination of how much the child’s parents were required to reimburse North Carolina’s Medicaid program for the cost of her treatment, under state law. The state had informed the parents that it had spent $1.9 million on the child’s medical care, and that it would seek to recover that amount, or up to one-third of the total recovery of any settlement or judgment of the malpractice claim, in accordance with state law.

The child’s parents then brought suit in federal court, claiming that the state’s law pertaining to its reimbursement rights violated the federal Medicaid statute. In the decision, the Supreme Court ruled that North Carolina’s law is pre-empted to the extent that it permits the state to “take a portion of a Medicaid beneficiary’s tort judgment or settlement not designated for medical care.” The Court held that North Carolina’s law directly conflicts with the federal statute and “must give way” to it. The Court’s opinion states that North Carolina’s law was pre-empted because the state law lacks any limiting principle, and provides no mechanism for determining whether its allocation of up to one-third of the total recovery is reasonable. Justice Kennedy wrote the Court’s opinion.